Shilling descends to new historical low

The Kenya shilling is now trading at an all time low against the US dollar as weakness in the local currency continues unabated.

According to data from Bloomberg’s USD-KES quote, the local unit exchanged hands at Ksh.111.61 with the dollar at the close of trading on Thursday, its lowest valuation ever.

Data from the Central Bank of Kenya (CBK) meanwhile shows the shilling’s previous all-time low was recorded on December 16 and December 17 last year when the unit was quoted at Ksh.111.59.

The shilling was already trading at a 10-month low for the better part of October having already wiped out gains recorded in the first half of 2021.

While the weakening of the shilling has not been traced to one specific factor, analysts have pointed to a number of elements dwindling the local unit’s value.

This includes rising uncertainties at the global market place, a widening current account deficit at the restart of international trade and a skewed demand for dollars especially from oil importers.

While the Central Bank of Kenya (CBK) is yet to comment on the recent dwindling of the local currency, Governor Dr. Patrick Njoroge has stated previously that the reserve bank would only intervene in the case of volatility.

Nevertheless, the CBK has remained active in open market operations (OMOs) to smoothen out shocks on the domestic forex exchange and guard against unprecedented gains or declines in the valuation of the shilling.

OMOs have included the sale of dollars from the CBK store of usable foreign currency to balance the demand for the green buck in financial markets.

Subsequently, the store of foreign currency has reduced by an estimated Ksh.50.5 billion ($454 million) across the last two months to mirror the CBK led mitigation measures.

The weakening of the local unit will see import costs rise steadily, a factor which will largely hit out at the cost of imported goods and import traders while further raising debt servicing costs for not just governments but also companies’ holding foreign currency denominated debt.

On the flipside however, the weakening of the shilling will raise the attractiveness of Kenyan exports which will be cheaper than before.

So far in 2021, the shilling has shed about 2.1 per cent of its value to the US dollar.